TaxTMI 
TaxTMI 
2005 (6) TMI 273
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....ound of appeal is against finding of the ld. CIT(A) that the assessments were validly re-opened under section 147 of the Income-tax Act. The second ground of appeal is against the finding of the ld. CIT(A) that deduction under Explanation (viii) below section 115JA of the Act has to be computed in accordance with provision of section 80HHC and not on the basis of book profits. In the course of the hearing before us, the first ground of appeal was not pressed by the ld. Counsel of the assessee. Therefore, we are left with the issue of computation of deduction under Explanation (viii) only. 3. Controversy has been set out by the ld. CIT(A) in various sub-paragraphs of paragraph 3 of the impugned order. It is mentioned that the gross total income of the assessee was computed at a loss of Rs. 86,98,281. Therefore, in normal computation of income, the deduction under section 80HHC was not claimed by it. However, while coming to computation of income under section 115JA, the assessee deducted an amount of Rs. 2,91,725 from the book profits as deduction under Explanation (viii) and computed income at Rs. 1,24,139, being 30 per cent of the adjusted book profits of Rs. 4,13,796. The Asse....
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....income computed under this Act is less than 30 per cent of its book profits. In such a case, the assessee-company will have to prepare its profit and loss account in accordance with provisions of Parts II, III of Schedule VI of the Companies Act, 1956. The book profits as computed in the profit and loss account shall be increased by the amounts referred to in clauses (a) to (f) of the Explanation below this section. The amount so arrived at shall be reduced by the amounts mentioned in clauses (i) to (ix) of the Explanation. The sum so arrived at shall be the book profit and 30 per cent thereof shall be deemed to be the total income of the assessee for the purpose of taxation. On the basis of these provisions, the ld. Counsel claimed that while computing deduction under section 80HHC, and while giving effect to the provision contained in the aforesaid clause (viii), the provisions of sections 80A(2) and 80B(5) will have no application. In this connection, he referred to Circular Nos. 762 dated 18-12-1998, 763 dated 18-2-1998 and 559 dated 4-5-1990. He also referred to the decision of ITAT Hyderabad Bench "B" in the case of Starchik Specialties Ltd v. Dy. CIT [2004] 90 ITD 34. In par....
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..... The Ld. counsel had also relied on Circular No. 763 dated 18-2-1995. In this circular, it is, inter alia, mentioned that MAT on companies was introduced with effect from 1-4-1997. For this purpose, 30 per cent of the book profits was deemed to be the income of the assessee. The Act exempts export profits that are eligible for deduction under section 80HHC or under section 80HHE from the purview of the MAT. It may be pointed out here that clause (viii) of the Explanation was inserted with effect from 1-4-1998. Therefore, these circulars deal with the position of law before insertion of the aforesaid clause. The first circular does not really throw any light on the mode and manner of deduction under clause (viii). It only says that MAT will apply only to such cases where export profits forming part of book profits exceeds 70 per cent of the total profits. The counsel's case seems to be that the circular speaks in terms of "Export Profits forming part of book profits" and therefore, deduction under the aforesaid clause should be based upon the book profits. Circular No. 763 merely states that Act exempts export profits that are eligible for deduction under section 80HHC from the....
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.... that amount of profits eligible for deduction under section 80HHC, computed under sub-section (3) etc. of that section. It does not use the language specifically to the effect that the deduction is to be computed in the manner specified in subsection (3) of section 80HHC. Therefore, it does transpire that the languages of the two provisions are not in pari materia. 5.2 The ld. Counsel of the assessee also relied on the decision of Hyderabad Bench 'B' in the case of Starchik Specialities Ltd. In paragraph 8 of this order, it is mentioned that the provision contained in clause (iii) of Explanation to section 115J was considered by the Hon'ble Kerala High Court in the case of G.T.N. Textiles Ltd. It was pointed out that what has to be reduced from the book profits is the amount of profit eligible under section 80HHC, and that deduction has to be computed under sub-section (3) or sub-section (3A) of that section. The slight differences in expression like the words "in the manner" used in clause (iii) and absence thereof in clause (viii) of section 115JA does not make any material difference. In the case decided by the Hon'ble Kerala High Court, assessee was engaged ....
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.... from the question that it is not of any relevance to the controversy at hand. However, the Hon'ble Court stated that As stated earlier, the amounts are added as per the provisions of the Act mentioned in section 115J of the Act. Section 115J(1), Explanation (a), mentions only the amount of the income-tax paid or payable that does not include interest. According to us, the provisions in the Act have to be strictly construed. Insofar as interest on income-tax is not mentioned in the section, according to us, this cannot be added under section 115J of the Act. The ld. D.R. placed emphasis on the observations of the Hon'ble High Court to the effect that the provisions of the Act very strictly construed. This case was decided under section 115J and the provisions of this section are akin to provisions of section 115JA. Therefore, it does appear that this observation will apply with equal force while interpreting the provisions of section 115JA. In other words, the provisions of section 115JA including provisions of clause (viii) will have to be construed strictly. 5.4 Having considered all the aforesaid arguments, we are of the view that Hon'ble Hyderabad 'B' Ben....
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....ction 115JA, then the difference between tax on book profits and the tax under normal computation is treated as MAT credit and retained by the Department. The tax credit is to be carried forward and in the year when the assessee is taxable under the normal computation of income-tax, carried forward tax credit is set off against the difference between the tax payable under normal computation and tax payable on book profits. If the tax liability increases or decreases on account of appeal etc., the amount of credit set off is also accordingly altered. However, the amount of un-utilised credit is not to be re-paid. No interest is payable by the Department till the date of adjustment. In view of this, it was held in that case that the credit retained by the Department for the purpose of subsequent set off was in the nature of advance tax payment. The ld. counsel of the assessee also relied on the decision of ITAT, Cochin Bench, in the case of Synthetic Industrial Chemicals Ltd. v. Dy. CIT [2004] 90 ITD 851. The Hon'ble Tribunal pointed out that a simple reading of provisions of law make it clear that the assessee has to first work out its advance tax liability on an estimate basis ....